Japan May Benefit from Uptick in Manufacturing Activity, Exports
After a slump in consumer spending had raised concerns of an economic slowdown in Japan recently, there was a welcome uptick in indicators such as manufacturing activity and exports. However, slowing growth in China, a major trading partner, is widely expected to have a bearing on the economy in the near future. Meanwhile, the Reserve Bank of Australia left interest rates unchanged in its recent review as expected, thanks to subdued inflation, a stabilizing job market, and early signs of a pick-up in business investment. Despite the collapse in dairy prices, credit rating agency Fitch expects New Zealand’s economy to grow at the rate of 2.8 percent in 2015. Notwithstanding the growth in exports, Singapore’s economy shrunk in the second quarter due to slackening global demand and restrictions on employing foreign labor in the country’s crucial manufacturing sector. To defuse the current political volatility in the city, Hong Kong Chief Executive Leung Chun-ying recently unveiled an economic stimulus package, which proposes better salaries for civil servants, more homes for the elderly, and additional financing options for small and medium businesses.
At a Glance
Japan: Though the second quarter figure for Japan is not published yet, analysts expect only a marginal expansion during the period, compared to 3.9 percent growth in the first quarter. Private consumption, which accounts for about 60 percent of the Japanese economy, fell 2.0 percent year on year in June, after increasing steadily over the past few quarters.
Australia: The Reserve Bank of Australia Assistant Governor Christopher Kent said low interest rates are helping the housing market, which in turn supports consumption and employment. As expected, the bank left interest rates unchanged at its recent meeting.
New Zealand: New Zealand’s agriculture-based economy has been hit by the economic slowdown in China, the country’s major trading partner and a big purchaser of its dairy products. The fall in dairy prices also has had immediate repercussions in the larger economy as businesses have already started shedding jobs.
Singapore: Despite the surge in export growth, the island-state’s economy shrunk in the second quarter as slackening global demand and restrictions on employing foreign labor hit the country’s crucial manufacturing sector. GDP contracted annual 4.6 percent during the second quarter, a news report said.
Hong Kong: Hong Kong Chief Executive Leung Chun-ying unveiled an economic stimulus package for the city, which proposes better salaries for civil servants, more homes for the elderly, and additional financing options for small and medium businesses, a news report said.
JAPAN: UPTICK IN MANUFACTURING MAY HERALD ECONOMIC RECOVERY
Manufacturing activity in Japan, the biggest of the developed economies in the region, recorded the fastest pace of growth in five months in July, according to the Markit/Nikkei Japan Purchasing Managers Index. The index showed a reading of 51.2, above the threshold of 50 which demarcates expansion from contraction, a Reuters news report said. It is widely perceived that the growth in manufacturing may be a pointer to an economic revival in the third quarter. Meanwhile, Japan’s exports grew at the highest rate seen in five months in June, thanks to the recovery in sales of electronics items and cars, though the slowdown in China is widely expected to hurt the country’s exports in the near future. Total exports showed an increase of 9.5 percent on an annual basis in June, while imports fell 2.9 percent during the same period, the report said.
Conversely, private consumption, which accounts for about 60 percent of the Japanese economy, fell 2.0 percent year on year in June, after increasing steadily over the past few quarters. Weak domestic demand for homes and cars points to increasing costs of living, which typically deter consumers from big-ticket spending. In fact, household spending was hit by a sales tax hike in the beginning of 2014. Though the second quarter growth figure for Japan is not published yet, analysts expect only a marginal expansion during the period, compared to 3.9 percent growth in the first quarter. Still, the Bank of Japan has decided that its current stimulus program is adequate, and in line with its view that the economy is recovering moderately. Despite the BoJ’s optimism, inflation in Japan remained subdued, far from the bank’s target rate of 2 percent. Core inflation, which excludes food prices, increased 0.1 percent in June on a year-on-year basis, according to the Financial Times, while the headline consumer price index rose 0.4 percent from the year-ago period. The lingering impact of lower fuel prices seems to be keeping the lid on consumer prices.
AUSTRALIA: LOWER INTEREST RATES BOOST ECONOMIC ACTIVITY
The Reserve Bank of Australia left interest rates unchanged at its meeting held on August 4. Sydney’s overheated property market, subdued inflation, stabilizing job market, and early signs of an uptick in business investment are prompting the bank to leave the rates untouched, according to a write-up in The Sydney Morning Herald (SMH). The central bank had cut rates last in May, which followed a reduction in February this year. The bank’s Assistant Governor Christopher Kent said low interest rates are helping the housing market, which in turn supports consumption and employment. Lower interest rates also boosted retail sales for the second quarter, which increased 0.8 percent.
Despite the improvement in some of the economic barometers, the Australian economy is expected to have slowed down in the second quarter of 2015, compared to the 0.9 percent growth in the quarter before. An increase in exports of resources and purchases of consumer goods and homes boosted growth in the first quarter. What’s more, Australia leapfrogged some of its developed market peers such as the U.K., which clocked 0.3 percent growth, and the European Union, which registered a 0.4 percent gain during the same period.
In a review of the Australian economy, the International Monetary Fund (IMF) commented that the years of 3.25 percent annual growth might be over for the country and growth closer to 2.5 percent a year would be the norm in the future. James Daniel, IMF’s Assistant Director for Asia and the Pacific, said in an article published in SMH that the Australian government can afford to reduce its budget deficit at a much slower pace so that it could increase spending on improving the country’s rails, roads, and schools. In Mr. Daniel’s view, the country’s Reserve Bank should be willing to reduce rates again if required.
NEW ZEALAND: INTEREST RATES CUT FURTHER AS GROWTH SLOWS
New Zealand’s central bank cut interest rates to 3.0 percent on July 22 as economic growth slows down, a Reuters report said. The 20 percent slump in dairy prices in June took a toll on the economy, which had grown at an annual rate of 3.0 percent until 2014. The agriculture-based economy has been hit by the economic slowdown in China, New Zealand’s major trading partner and a big purchaser of the country’s dairy products. The fall in dairy prices also has had immediate repercussions in the larger economy as businesses have already started shedding jobs. Business and consumer sentiment hit a three-year low even as economic growth slowed to 2.6 percent in the first quarter. Falling inflation, which stands at an annual 0.3 percent currently, is also a cause of worry for the country’s policy makers.
Credit ratings agency Fitch said the country’s government deficit continued to narrow though at a slower pace. Fitch cited New Zealand’s flexible economic policy, high standards of governance, and supportive business environment. The agency estimates that the economy would grow at 2.8 percent in 2015 based on its assumption that dairy prices would recover during the year. At the same time, Fitch sounded a note of caution that a protracted decline in the prices of milk products would be detrimental to the economy.
SINGAPORE: EXPORTS SURGE, MANUFACTURING LAGS
The trade-reliant economy of Singapore registered export growth of annual 4.7 percent in the month of June, exceeding analyst expectations. Exports to China, Singapore’s biggest trading partner, increased 12.2 percent year-on-year in June, while sales to the U.S. witnessed an exponential 32.2 percent growth in the same period.
Despite the surge in export growth, the tiny island-state’s economy shrunk in the second quarter as slackening global demand and restrictions on employing foreign labor hit the country’s crucial manufacturing sector. GDP contracted an annualized 4.6 percent during the second quarter, a Reuters news report said. The slump in the manufacturing sector was mainly due to the fall in output from the transport engineering and biomedical clusters.
The city-state’s economy had expanded 4.2 percent during the first quarter of 2015. Singapore’s manufacturing sector is being hit badly by severe competition from South Korea and Taiwan and the absence of popular gadgets such as smartphones in its export mix. Furthermore, the country’s services sector also contracted 2.6 percent on a quarter-on-quarter basis.
Consumer price inflation in Singapore has fallen steadily between November 2014 and May 2015, though the country’s central bank said the economy is not facing deflation yet despite the further dip in inflation expected this year. Moreover, the bank said it expects prices to pick up in 2016. Monetary Authority of Singapore Managing Director Ravi Menon pointed out in a Reuters report that while housing costs and prices of car permits have come down, food prices have increased moderately.
HONG KONG: NEW ECONOMIC STIMULUS PROGRAM FOR THE CITY
Hong Kong’s small economy is closely interlinked with the Chinese economy. The correlation is evident in the fall in the number of mainland tourists visiting Hong Kong in recent months. China’s slowing economy, the official crackdown on corruption in high places, and austerity drives have deterred the average Chinese tourist from visiting Hong Kong, a Bloomberg report said. In statistical terms, there has been a 40 percent drop in Chinese visitors to Hong Kong in the first two weeks of July compared to the year-ago period, the report said. Competition from the likes of Thailand and South Korea and hotspots in the mainland itself such as Shenzhen and Shanghai has impacted Hong Kong’s tourism revenues. China’s recent reduction of tariffs on popular products such as face creams also reduced the allure of Hong Kong as a cheaper shopping alternative. Understandably, Hong Kong’s economy registered a growth rate of 2.1 percent in the first quarter of 2015 compared to 2.5 percent in the year-ago period.
The political situation in Hong Kong has remained volatile after street protests erupted last year demanding more democratic freedom for city-dwellers. On June 18, the city’s lawmakers vetoed a Beijing-backed electoral reform package. To defuse the prevailing tension, Hong Kong Chief Executive Leung Chun-ying unveiled an economic stimulus package for the city, which proposes better salaries for civil servants, more homes for the elderly, and additional financing options for small and medium businesses, a Reuters news report said.
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